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Wikipedia
Causes of delay
Lag may be traced to three main sources:
Inadequate network performance
The packets are either interrupted along their path by faulty routers, the network cannot handle the number of packets sent/required (see: bandwidth) or the packets pass through an unusually large number of routers before reaching their destination.
Inadequate server processing power
Lag may be experienced where the user submits an unusual request which is not yet cached, or where the reply requires a large amount of processing before it can be sent. This affects multiplayer gaming . The bandwidth of an area which the packets would normally pass through quickly may be disrupted during working hours (for example), thus the packet would need to 'queue' at each router before being sent onwards. A suitable analogy would be the effects of rush hour on everyday road traffic.
Inadequate computer processing power
Even on a fast connection, a slow computer may have a difficult time to process all the data being sent and received while other applications are running, (Ex. Online games and internet Browsers.) Spyware and Peer-to-peer programs hamper the efficiency of both computer and connection integrity, reliability and efficiency in a timely manner.
Slow computers can usually be upgraded very easily in both hardware and software to improve efficency. Stopping other programs such as spyware, trojans, viruses, and Peer-to-peer programs help as well.